Fuel tax incidence in developing countries: the case of Costa Rica

Policy makers in developing countries need to balance an array of distributional, political, fiscal and environmental goals in deciding whether to raise fuel taxes. Our analysis demonstrates that distributional concerns need not trump competing goals.

Although fuel taxes are a practical means of curbing vehicular air pollution, congestion, and accidents in developing countries—all of which are typically major problems—they are often opposed on distributional grounds. Few studies have investigated the empirical validity of this argument in a developing country context. This policy brief describes the results of a study based on data from a household survey and income-outcome coefficients to analyze fuel tax incidence in Costa Rica.